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New federal rule widens overtime pay eligibility

October 4, 2019
Overtime pay eligibility will be expanded for up to 1.3 million workers effective Jan. 1, the Labor Department announced Sept. 24.
Under the new rule, most salaried workers who earn less than about $35,500 a year will be eligible for time-and-a-half overtime pay, up from the current threshold of about $23,700.
The Obama administration raised the threshold considerably higher in 2016 in an effort to cover millions more workers, but a federal judge first suspended and later invalidated the rule, which never took effect.
The current salary limit was set by the George W. Bush administration in 2004.
"This rule brings a common-sense approach that offers consistency and certainty for employers as well as clarity and prosperity for American workers," Patrick Pizzella, the acting labor secretary, said in a statement.
Many employers and business groups had supported an increase in the limit but argued that the Obama threshold of about $47,500 was simply too high. They warned that it would require businesses to suddenly pay out hundreds of millions of dollars in overtime compensation or raises intended to move workers above the new threshold.
"Had the Obama administration adopted a number that had three in front of it, they would not have been sued," said Tammy McCutchen, one of the authors of the Bush increase, who now is a lawyer at the management-side firm Littler Mendelson.
The Obama administration had argued that its rule was in line with historical increases, and that it left fewer salaried workers eligible for overtime than had been eligible in 1975.
Heidi Shierholz, a former Labor Department chief economist who helped develop the Obama rule, said in a statement: "While the administration may be trumpeting this rule as a good thing for workers, that is a ruse. In reality, the rule leaves behind millions of workers who would have received overtime protections under the much stronger rule, published in 2016, that the Trump administration abandoned."
The Trump administration had appealed the decision that struck down the Obama rule but asked the court to suspend its appeal while it worked on a replacement.
In an analysis of the rule that the Labor Department proposed in March, which closely resembles the final version announced Sept. 24, Shierholz estimated that the Trump rule would yield workers $300 million to $600 million a year in wage increases over the next decade. But that amount was more than $1 billion a year less, on average, than the wage gains that the Obama rule would have produced, according to her estimates.
Salaried workers who make more than the legal threshold can also be eligible for overtime pay if they lack substantial decision-making authority. But the Obama administration argued that employers had either ignored this so-called duties test or circumvented it by giving low-level workers loftier titles, which made the salary threshold the de facto standard.
President Trump’s first nominee for labor secretary, Andrew Puzder, strongly opposed a significant increase in overtime eligibility. But Alexander Acosta, who replaced Puzder after his nomination collapsed amid personal controversy, took a more conciliatory tack. Acosta endorsed a threshold in the low $30,000s during his 2017 confirmation hearings.
Acosta resigned as labor secretary in July amid criticism of his handling of a sex-crimes case against the financier Jeffrey Epstein, when Acosta was a federal prosecutor in South Florida. On Sept. 26, the Senate confirmed the nomination of Acosta’s successor, Eugene Scalia, a son of the Supreme Court justice Antonin Scalia, who died in 2016.